FNCE340 Chapters 1-2 Review

In 2016, Southwest Airlines had negative net working capital of $(2,346) million and current assets of $4,498 million. The firm's current liabilities are:

Net working capital = Current assets - Current liabilities. Current liabilities = Current assets - Net working capital Current liabilities =$4,498- $(2,346) Current liabilities = $6,844 million

Which of the following accounts would NOT be involved in preparing the income statement?

Accumulated depreciation

As inventory and property plant and equipment on the balance sheet are consumed, they are reflected:

As an expense on the income statement

In its 2016 annual report, Mattel Inc. reported the following (in millions): Total liabilities $4,086.0 Total shareholders' equity $2,407.8 What proportion of Mattel is financed by nonowners?

Assets = $4,086.0+ $2,407.8= $6,493.8 $4,086.0/ $6,493.8 =62.92%

In its 2016 annual report, Snap-On Incorporated reported the following (in millions): Current assets $1,884.0 Total shareholders' equity $2,635.2 Total liabilities $2,088.0 What did Snap-On report as total assets at year-end 2016?

Assets = Liabilities + Stockholders Equity. Assets = $2,088.0 + $2,635.2 Therefore, Assets= $4,723.2

United Airlines' 2016 balance sheet reported the following (in millions) Total Assets $40,091 Total Liabilities 31,485 Contributed Capital 3,573 What was United Airlines' total liabilities and stockholders' equity at December 31, 2016?

Assets = Liabilities + Stockholders Equity. Assets = $40,091 (million) so this is the total of liabilities and equity combined.

When classifying assets as current and noncurrent for reporting purposes,

Assets are classified as current if they are reasonably expected to be realized in cash or consumed during the normal operating cycle.

During fiscal 2016, Plastics and Synthetic Resins Company recorded cash of $87,800 from customers for accounts receivable collections. Which of the following financial statement effects template entries captures this transaction?

Balance Sheet Income Statement Cash Assets + Noncash Assets = Liabilities + Contributed + Earned Revenues - Expenses =Net Income Capital Capital +87,800 -87,800 (AR)

How would a sale of $400 of inventory on credit affect the balance sheet if the cost of the inventory sold was $160?

Both the first and the second choices, above happen simultaneously: It would increase noncash assets by $400 and increase equity by $400 and It would decrease noncash assets by $160 and decrease equity by $160

In its fiscal 2016 annual report, Nike, Inc. reported cash of $3,138 million at year end. The statement of cash flows reports the following (in millions): Net cash from operating activities $3,096 Net cash from investing activities (1,034) Net cash from financing activities (2,776) What was the balance in Nike's cash account at the start of fiscal 2016?

Cash at end of year = Cash at beginning of year + Change in cash during the year $3,138= Cash at beginning of year + $3,096- $1,034- $2,776 Cash at beginning of year = $3,852 million

The Goodyear Tire & Rubber Company's December 31, 2016, financial statements reported the following (in millions). Cash December 31, 2016 $1,132 Cash from operating activities $1,504 Cash from investing activities $(973) Cash from financing activities $(875) What did Goodyear report for cash on its December 31, 2015balance sheet?

Cash, beginning of year + $1,504 - $973- $875 = $1,132. Cash, beginning of year = $1,476 (million)

The tools for studying industry economics does not include

Classification of cash flows

A company in the growth phase of its product life cycle will normally have the following pattern of cash flows

Negative or positive cash flows from operations, negative cash flows from investing and positive cash flows from financing.

Which of the following are included in current assets?

Prepaid Rent

Which of the following is a cash flow from operating activities?

Purchase of merchandise for resale.

During fiscal year-end 2016, Kohl's Corporation reports the following (in $ millions): net income of $556, retained earnings at the end of the year of $12,522 and retained earnings at the beginning of the year of $12,329. Assume that there were no other retained earnings transactions during fiscal 2016. What dividends did the firm pay in fiscal year ended January 28, 2017?

Retained earnings, 2016 = Retained earnings, 2015 + Net Income - Dividends Dividends = Retained earnings, 2015 + Net Income - Retained earnings, 2016 Dividends = $12,329+ $556- $12,522 = $363 million

Intel Corporation reported the following on its 2016 income statement (in millions) Sales revenue $59,387 Gross profit $36,191 Total expenses $23,317 What did Intel report for cost of goods sold during 2016?

Sales - Cost of goods sold = Gross profit $59,387 - Cost of goods sold = $36,191 Therefore, Cost of goods sold = $23,196 (million)

The SEC adopted Regulation FD, to curb public companies' practice of:

Selectively disclosing information

A value chain for an industry sets forth

Sequence of activities involved in the creation, manufacture, and distribution of its products.

The basic financial statements include a

Statement of financial position, income statement, statement of cash flows, and statement of retained earnings.

Financial statement users with a direct economic interest in a specific business include

Suppliers

Fizzzle Inc. sold a piece of equipment during the period for $230,000 and recorded a gain of $45,000 on the sale. How should this gain be treated when preparing the operating activities section of the statement of cash flows using the indirect method?

The gain is subtracted from net income in the operating activities section.

Which of the following is not one of Porter's five forces?

Threat of Regulation

In its December 31, 2016 financial statements, Harley-Davidson reported the following (in millions): Long-term Assets Current Liabilities Long-term Liabilities Total Liabilities Equity $6,036 $ 2,863 $ 5,107 $7,970 $1,920 At December 31, 2016, current assets amount to:

Total assets = Total liabilities + Equity. Total assets - Long-term assets = Current assets. Current assets = $7,970 + $1,920- $6,036. Current assets = $3,854 million

Which of the following is not a discontinued account in the income statement?

Unusual or in frequent account

Which one of the following statement(s) is (are) most likely to be TRUE? I. When shareholders contribute capital to a company, earned capital increases because the company has earned the shareholders' investments. II. Revenues and expenses affect the income statement but not the balance sheet. III. Retained earnings articulate across time which means that last period's retained earnings plus current period net income (or loss) is equal to the current period's retained earnings. IV. Revenue is typically recorded as earned when cash is received because that is when the company can measure the revenue objectively.

None of the Above

How would a purchase of inventory on credit affect the income statement?

None of the Above-The purchase of credit increases both accounts payable and inventory, which are balance sheet accounts. It would, therefore, have no effect on the income statement.

The changes in account balances of the Samson Corporation during the year are presented below: Assets $356,000 Liabilities 108,000 Capital stock 240,000 Additional paid-in capital 24,000 Assuming there are no charges to retained earnings other than for a dividend payment of $52,000, the net income for the year, should be

36000

On January 1, Fey Properties collected $7,200 for six months' rent in advance from a tenant renting an apartment. Fey Company prepares monthly financial statements. Which of the following describes the required adjusting entry on January 31?

Debit Unearned rent revenue for $1,200 and Credit Rent revenue for $1,200

Which one of the following statement(s) is (are) most likely to be TRUE? I. In order for an asset to be reported on the balance sheet, it must be owned or controlled by the company and be expected to provide future benefits. II. Assets are reported on the balance sheet at their current market value. III. Assets are listed on the balance sheet in order of liquidity and liabilities are listed in order of maturity. IV. Liabilities and equities are both claims against the assets of a company.

I, III, and IV only

Which of the following statement (s) is (are) most likely to be FALSE? I. Shareholders demand financial information primarily to assess profitability and risk whereas bankers demand information primarily to assess cash flows to repay loan interest and principal. II. Publicly traded companies are required to provide quarterly financial reports directly to the public. III. Publicly traded companies must provide to the Securities Exchange Commission annual audited financial statements (10-K reports) and quarterly audited financial statements (10-Q reports). IV. Financial statements are influenced by five important forces that determine a company's competitive intensity: (A) industry competition, (B) buyer power, (C) supplier power, (D) product substitutes, and (E) threat of entry.

II and III only

How would cash collected on accounts receivable affect the balance sheet?

Increase assets and decrease assets

An accrual of wages expense would have what effect on the balance sheet?

Increase liabilities and decrease equity

Sales on account would produce what effect on the balance sheet?

Increase noncash assets (Accounts receivable)

Which of the following would not inhibit new entrants into a market?

Lack of rivalry among current participants.

One rationale for the statement of cash flows is to

reconcile differences between net income and cash receipts and disbursements.